The power of a Euro­pean En­ergy Union

One of the top pri­or­i­ties es­tab­lished by Euro­pean Com­mis­sion Pres­i­dent Jean-Claude Juncker ahead of his elec­tion last sum­mer was the cre­ation of a Euro­pean en­ergy union. He was right to do so. Done prop­erly, a more co­he­sive en­ergy pol­icy could achieve three strate­gic ob­jec­tives si­mul­ta­ne­ously.

By co­or­di­nat­ing re­search and in­vest­ment, en­cour­ag­ing con­ser­va­tion, and in­te­grat­ing en­ergy mar­kets, an en­ergy union would help fight cli­mate change, pro­vide Europe with a much needed eco­nomic stim­u­lus, and pro­tect the con­ti­nent from sup­ply shocks, such as those caused by the crises in North Africa and Ukraine.

Of course, the Euro­pean Union’s abil­ity to act is de­pen­dent on the will­ing­ness of its mem­ber states; and, though some of the con­ti­nent’s lead­ers have cham­pi­oned the ini­tia­tive, oth­ers have proved less en­thu­si­as­tic. A cru­cial test of their col­lec­tive re­solve will be whether they are will­ing to sup­port key in­fra­struc­ture projects that de­liver on all three ob­jec­tives.

One good ex­am­ple of such a project is the North Sea Coun­tries’ Off­shore Grid Ini­tia­tive, a pro­posal that would link off­shore wind farms to a new re­gional grid, and al­low coun­tries to bal­ance vari­able power sup­plies across bor­ders. The idea – first ad­vanced in a 2009 mem­o­ran­dum of un­der­stand­ing signed by nine EU mem­ber states and Nor­way – has enor­mous po­ten­tial; by 2030, North Sea winds could pro­vide Europe with 10% of its elec­tric­ity – car­bon-free. But if the project is to go for­ward, it ur­gently needs a po­lit­i­cal man­date.

The in­te­grated grid can be imag­ined as a large ring, con­nect­ing Nor­way with the United King­dom, and then link­ing across the chan­nel to France, Bel­gium, and Hol­land, be­fore mov­ing on to Ger­many and re­turn­ing to Scan­di­navia. Its im­ple­men­ta­tion would al­low Europe to in­tro­duce a free­trade zone for re­new­able en­ergy, re­duc­ing the need for stor­age and ex­cess ca­pac­ity to back up vari­able power sup­plies. Not only would the grid pay for it­self; once in place, it would re­duce the cost of new wind farms by some 30%, by pro­vid­ing them with an ex­ist­ing con­nec­tion to en­ergy mar­kets.

An in­ter­con­nected en­ergy sys­tem would make par­tic­u­lar sense for the UK and Ger­many, which could use the one-hour time dif­fer­ence be­tween them to smooth out the peaks and troughs in de­mand. Re­new­able en­ergy pro­duc­tion is by na­ture intermittent, and the sheer num­ber of fluc­tu­at­ing power sources in Ger­many is al­ready push­ing its ex­ist­ing grid to the limit. In­ter­con­nec­tion would also re­duce the num­ber of new on­shore trans­mis­sion lines the coun­try needs. The Ger­man gov­ern­ment has pro­duced a pol­icy pa­per out­lin­ing how a more in­te­grated re­gional mar­ket might work.

Last year, the UK matched Ger­many’s in­vest­ments in clean en­ergy, spend­ing some $15.2 bln on so­lar pan­els and wind farms. But Bri­tain will need to do a lot more if it is to meet its cli­mate tar­gets. Ac­cord­ing to a par­lia­men­tary re­port, “the cost of de­vel­op­ing such a su­per­grid could be very high... but it may bring a host of eco­nomic benefits – in­clud­ing tens of thou­sands of new jobs in the off­shore re­new­able in­dus­try.” A re­gional ini­tia­tive would also al­low Prime Min­is­ter David Cameron to ac­com­mo­date op­po­si­tion within his party to on­shore re­new­able en­ergy plants.

Each of the in­di­vid­ual coun­tries in­volved in the project would ben­e­fit from its con­struc­tion. Hol­land and Bel­gium need a cost-ef­fec­tive way to de­velop their own off­shore re­sources. Den­mark al­ready benefits from an in­ter­con­nected elec­tric­ity mar­ket; and the les­son it has learned is that it makes sense to in­te­grate even fur­ther. Nor­way would be able to sell its hy­dropower and se­cure a backup sup­ply should cli­mate change leave it run­ning dry. Ad­vances in ca­ble tech­nol­ogy would al­low Ire­land to link to France, pro­vid­ing an al­ter­na­tive route to Euro­pean mar­kets if the UK elects to re­main out­side the net­work.

Juncker’s EUR 315 bln in­vest­ment plan, pro­posed in De­cem­ber, in­cludes some 87 bln in in­ter­con­nec­tion projects. It would make sense to com­bine th­ese into a sin­gle ini­tia­tive, with com­mon stan­dards for tech­nol­ogy, plan­ning, and reg­u­la­tions. Do­ing so would lower the cost of cap­i­tal on loans from the Euro­pean In­vest­ment Bank and give a boost to Euro­pean tech­nol­ogy com­pa­nies.

The Baltic states are also plan­ning their own off­shore grid. But it is not just North­ern Europe that could gain from such an ap­proach. Europe’s south­east­ern and Mediter­ranean coun­tries could also ben­e­fit from shar­ing power.

Most of the nec­es­sary legal and reg­u­la­tory frame­work is al­ready in place. There is no need for treaty changes or com­plex new leg­is­la­tion. All that is needed is po­lit­i­cal di­rec­tion, so that the Euro­pean Com­mis­sion can es­tab­lish the nec­es­sary gov­er­nance struc­tures.

The strength of Europe’s com­mit­ment to a true en­ergy union will be re­vealed when the Euro­pean Coun­cil meets on March 19. Among the de­ci­sions it will make will be whether to build th­ese re­gional grids. If the EU and its mem­ber states reach an agree­ment, they could si­mul­ta­ne­ously boost their economies and im­prove their en­ergy se­cu­rity. If not, they could end up buy­ing the tech­nol­ogy from China or the United States, which will be in­vest­ing in their own grids in the com­ing years.